NCI Neo Concept International Group Holdings Ltd

NCI, Inc. (NASDAQ:NCIT), a leading provider of information technology (IT), professional services and solutions to U.S. Federal Government agencies, today announced financial and operating results for the first quarter of 2012.

NCI’s first quarter revenue exceeded the high end of management’s previously issued guidance by approximately $2 million. Earnings per share exceeded the high end of guidance by $0.01.

First Quarter 2012 Results:

For the first quarter of 2012, NCI reported revenue of $99.1 million compared with first quarter 2011 revenue of $150.2 million, a decrease of 34.0%. The year-over-year decrease in revenue was due to the decline of approximately $27 million of BRAC-related and other non-core program revenue; a net decrease of $15 million in core revenue as a result of reductions of scope of work, the expiration of task orders and contracts, and certain lost contract recompetes; and lower revenue under our PEO Soldier contract of approximately $9 million, among other factors.

General and administrative expenses for the first quarter of 2012 were $6.7 million, or 6.8% of revenue, compared with $5.8 million, or 3.8% of revenue for the first quarter of 2011. The increase was due to general and administrative expenses associated with programs attributable to AdvanceMed Corporation, which we acquired as of April 1, 2011; the timing of certain accrued expenses; greater allocation of information technology, facility and other corporate infrastructure expenses attributable to our reduced revenue base; higher stock compensation expense; and labor and fringe benefit costs associated with certain senior executive positions that were vacant in the first quarter of 2011.

Operating income for the first quarter of 2012 was $3.1 million, down from $9.7 million for the first quarter of 2011.

Operating margin for the first quarter of 2012 was 3.1% compared with operating margin of 6.5% for the first quarter of 2011. Operating margin for the first quarter of 2012 declined due to reduced absorption of indirect costs on the lower revenue base, reduced profitability on our PEO Soldier cost-plus fee bridge contract, and lower contract margins on new awards and recompetes as a result of cost-competitive pricing terms.

Net income for the first quarter of 2012 decreased to $1.6 million from $5.7 million in the first quarter of 2011. The decrease in net income year-over-year is attributable to the factors affecting operating income, higher interest expense, and a higher effective income tax rate. Diluted earnings per share for the first quarter of 2012 were $0.12 compared with $0.41 in the first quarter of 2011.

NCI reported total backlog at March 31, 2012 of $903 million, of which $203 million was funded. This compares with total backlog of $1.0 billion at December 31, 2011, of which $220 million was funded.

Days sales outstanding (DSO) at March 31, 2012 were 79 days compared with 76 days at December 31, 2011. The increase in DSO was due primarily to the timing of award fees, milestone payments, and contract funding modifications in the first quarter of 2012.

Management’s Outlook:

Based on the company’s current contract backlog and management’s estimate as to future tasking and contract awards, NCI is issuing guidance for its second quarter of 2012. Fiscal year 2012 guidance remains unchanged.

The table below represents management’s current expectations about future financial performance, based on information available at this time:

               

Fiscal Quarter

 

Fiscal Year

Ending

Ending

     

June 30, 2012

 

December 31, 2012

Revenue     $85 million - $90 million   $345 million - $375 million Diluted EPS     $0.06 - $0.08   $0.20 - $0.38 Diluted projected share count     13.7 million   13.8 million  

“We’ve spoken at length over the past year about the internal and external factors in order to explain – not excuse – the situation we are in,” said Charles K. Narang, NCI’s Chairman and CEO. “Our mission now is to take the lessons we have learned and essentially rebuild NCI. This effort will take time and resources. But I can say with confidence that we built NCI on values that are timeless: such as quality, integrity and customer service. These values will continue to define NCI. And they will carry over to a stronger, more focused company.”

“We continue to undergo significant change at NCI on all fronts, with particular emphasis on new business development,” said NCI’s President, Brian J. Clark. “The priority for NCI in 2012 continues to be focused on meeting or exceeding revenue and earnings expectations while rebuilding a more stable revenue base and positioning the company for more profitable growth in the future. This includes continuing to refine our infrastructure to efficiently support growth initiatives and provide the best possible return on investment.”

Conference Call Information

As previously announced, NCI will conduct a conference call today at 4:15 p.m. ET to discuss fiscal first-quarter 2012 results. Interested parties may access the call by dialing (877) 477-1422 (domestic) or (973) 582-2740 (international). The confirmation code for the live call is 42641173. The conference call will be broadcast simultaneously on the Investors page of NCI’s website: www.nciinc.com. Investors are advised to log on to the website at least 15 minutes prior to the call to register, download and install any necessary audio software.

A replay of the call will be available beginning at 8:00 p.m. ET today and will remain available for a two-week period. To access the replay, call (855) 859-2056 (domestic) or (404) 537-3406 (international). The confirmation code for the replay is 42641173. A replay webcast will also be available on NCI’s website shortly after the conclusion of the call.

About NCI, Inc.:

NCI is a leading provider of information technology (IT), and professional services and solutions to U.S. Federal Government agencies. NCI’s award-winning expertise encompasses areas critical to its customers’ mission objectives, including enterprise systems management; network engineering; cybersecurity and information assurance; software development and systems engineering; program management and lifecycle support; engineering and logistics; health IT and informatics; and training and simulation. The company is a member of the Russell 2000 and S&P Small Cap 600 indexes. Headquartered in Reston, Virginia, NCI has approximately 2,300 employees and nearly 100 locations worldwide. For more information, visit our website at www.nciinc.com or e-mail mcrystal@nciinc.com.

Forward-Looking Statement: Statements and assumptions made in this news release that, do not address historical facts, constitute “forward-looking” statements that NCI believes to be within the definition in the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties, many of which are outside of our control. Words such as “may,” “will,” “intends,” “should,” “expects,” “plans,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or “opportunity,” or the negative of these terms or words of similar import are intended to identify forward-looking statements.

Such statements are subject to factors that could cause actual results to differ materially from anticipated results. The factors that could cause actual results to differ materially from those anticipated include, but are not limited to, the following: our dependence on our contracts with Federal Government agencies, particularly within the U.S. Department of Defense, for substantially all of our revenue; a reduction in the overall U.S. Defense budget, volatility in spending authorizations for Defense and Intelligence-related programs by the Federal Government or a shift in spending to programs in areas where we do not currently provide services; Federal Government shutdowns (such as that which occurred during the Federal Government’s 1996 fiscal year), other potential delays in the Federal Government appropriations process, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011; risk of contract performance or termination; failure to achieve contract awards in connection with recompetes for present business and/or competition for new business; adverse results of Federal Government audits of our government contracts; government contract procurement risks (such as bid protest, small business set asides, etc.) and termination risks; competitive factors such as pricing pressures and competition to hire and retain employees (particularly those with security clearances); Federal Government agencies awarding contracts on a technically acceptable/lowest cost basis in order to reduce expenditures failure to successfully identify and integrate future acquired companies or businesses into our operations or to realize any accretive or synergistic effects from such acquisitions or to effectively integrate acquisitions appropriate to the achievement of our strategic plans; general economic conditions in the United States, including conditions that result from terrorist activities or war; material changes in laws or regulations applicable to our businesses, particularly legislation affecting (i) government contracts for services, (ii) outsourcing of activities that have been performed by the government, (iii) government contracts containing organizational conflict of interest (OCI) clauses, (iv) delays related to agency specific funding freezes, (v) competition for task orders under Government Wide Acquisition Contracts (GWACs), agency-specific Indefinite Delivery/Indefinite Quantity (IDIQ) contracts and/or schedule contracts with the General Services Administration, and (vi) our own ability to achieve the objectives of near-term or long-range business plans, including internal systems failures. These and other risk factors are more fully discussed in the section titled “Risks Factors” in NCI's Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC), and from time to time, in other filings with the SEC, such as our Current Reports on Form 8-K and Quarterly Reports on Form 10-Q.

Any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, any statements of the plans, strategies and objectives of management for future operations, the execution of cost reduction programs and restructuring and integration plans are also subject to factors that could cause actual results to differ materially from anticipated results.

The forward-looking statements included in this news release are only made as of the date of this news release, and NCI undertakes no obligation to publicly update any of the forward-looking statements made herein, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

     

NCI, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)

  Three months ended March 31, 2012 2011   Revenue $ 99,076 $ 150,225   Operating costs and expenses: Cost of revenue 87,445 133,256 General and administrative expense 6,744 5,759 Depreciation and amortization 1,773 1,308 Acquisition and integration related costs   —   201 Total operating costs and expenses   95,962   140,524   Operating income 3,114 9,701 Interest expense, net   450   197   Income before income taxes 2,664 9,504 Provision for income taxes   1,079   3,811 Net income $ 1,585 $ 5,693   Earnings per common and common equivalent share: Basic: Weighted average shares outstanding 13,577 13,670   Net income per share $ 0.12 $ 0.42   Diluted: Weighted average shares outstanding 13,630 13,909   Net income per share $ 0.12 $ 0.41        

NCI, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

As of

As of

March 31,

December 31,

2012

2011

(unaudited) Assets: Current assets: Cash and cash equivalents $ 68 $ 2,819 Accounts receivable, net 85,803 95,075 Deferred tax assets, net 3,954 4,152 Prepaid expenses and other current assets   5,621     3,159   Total current assets 95,446 105,205   Property and equipment, net 15,114 15,495 Other assets 1,693 1,875 Intangible assets, net 9,071 9,717 Goodwill   150,322     150,322   Total assets $ 271,646   $ 282,614     Liabilities and stockholders’ equity: Current liabilities: Accounts payable $ 23,399 $ 30,018 Accrued salaries and benefits 17,112 18,717 Deferred revenue 1,035 1,987 Other accrued expenses   5,546     5,697   Total current liabilities   47,092     56,419     Long-term debt 50,500 54,000 Deferred tax liabilities, net 6,138 6,165 Other long-term liabilities   1,890     2,229   Total liabilities   105,620     118,813     Stockholders’ equity: Class A common stock, $0.019 par value—37,500 shares authorized; 9,183 shares issued and 8,895 shares outstanding as of March 31, 2012, and 9,163 shares issued and 8,875 shares outstanding as of December 31, 2011 174 174 Class B common stock, $0.019 par value—12,500 shares authorized; 4,700 shares issued and outstanding as of March 31, 2012 and December 31, 2011 89 89 Additional paid-in capital 70,577 69,937 Treasury stock at cost— 288 shares of Class A common stock as of March 31, 2012, and December 31, 2011 (4,455 ) (4,455 ) Retained earnings   99,641     98,056   Total stockholders’ equity   166,026     163,801     Total liabilities and stockholders’ equity $ 271,646     282,614        

NCI, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

  Three months ended March 31, 2012   2011 Cash flows from operating activities: Net income $ 1,585 $ 5,693 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,773 1,308 Loss (gain) on sale and disposal of property and equipment 5 (16 ) Non-cash stock compensation expense 640 505 Deferred income taxes 171 107 Changes in operating assets and liabilities: Accounts receivable, net 9,273 11,234 Prepaid expenses and other assets (2,280 ) (2,184 ) Accounts payable (6,619 ) (23,775 ) Accrued expenses   (3,047 )   (124 ) Net cash provided by (used in) operating activities   1,501     (7,252 )   Cash flows from investing activities: Purchases of property and equipment (752 ) (641 ) Proceeds from sale of property and equipment   —     18   Net cash used in investing activities   (752 )   (623 )   Cash flows from financing activities: Borrowings under credit facility 44,369 37,911 Repayments on credit facility (47,869 ) (32,011 ) Principal payments under capital lease obligations — (17 ) Proceeds from exercise of stock options — 30 Excess tax deduction from exercise of stock options   —     (27 ) Net cash (used in) provided by financing activities   (3,500 )   5,886     Net change in cash and cash equivalents (2,751 ) (1,989 ) Cash and cash equivalents, beginning of period   2,819     2,791   Cash and cash equivalents, end of period $ 68   $ 802     Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 448   $ 193   Income taxes $ 2,087   $ 381